Blucora Announces Second Quarter 2017 Results

IRVING, Texas, July 27, 2017 (GLOBE NEWSWIRE) -- Blucora, Inc. (NASDAQ:BCOR), a leading provider of technology-enabled financial solutions to consumers, small businesses and tax professionals, today announced financial results for the second quarter ended June 30, 2017.

Second Quarter Highlights and Recent Developments

Increased revenue and operating income by 16% and 34%, respectively, year-over-year

HD Vest achieved record levels in AUA of $41.4 billion and AUM of $11.6 billion

Grew TaxAct revenue and segment income by 16% for the six months ending June 30, 2017 vs. prior-year period

"Blucora continued its positive momentum in the second quarter, with strong double-digit growth in revenue and segment income across both businesses, and achieved its stated net leverage goal," said John Clendening, Blucora's President and Chief Executive Officer. "HD Vest set new records in several categories, including total assets under administration (AUA), fee-based assets under management (AUM) and AUM as a percentage of AUA. TaxAct completed a strong tax season, as expected, and has turned its attention to enhancing its competitive positioning for next season."

"In addition to our strong performance in the second quarter, I am pleased to announce today that HD Vest has selected Fidelity Clearing & Custody Solutions as its new clearing provider. We believe this relationship, which is expected to go into effect in mid-2018, will provide new capabilities, enable a better advisor experience, and allow us to capture significant financial benefits over the long-term."

See reconciliations of all non-GAAP to GAAP measures presented in this release in the tables below.

Third Quarter and Full Year 2017 Outlook

For the third quarter of 2017, the Company expects revenues to be between $88.8 million and $91.3 million, GAAP net loss attributable to Blucora, Inc. to be between $18.7 million and $14.8 million, or $(0.42) to $(0.33) per diluted share, Adjusted EBITDA to be between $(2.9) million and $0.9 million, and Non-GAAP net loss to be between $10.9 million and $6.3 million, or $(0.24) to $(0.14) per diluted share.

For the full year 2017, the Company expects revenues to be between $500.0 million and $506.5 million, GAAP net income (loss) attributable to Blucora, Inc. to be between $(3.8) million and $4.6 million, or $(0.09) to $0.10 per diluted share, Adjusted EBITDA to be between $94.1 million and $102.3 million, and Non-GAAP net income to be between $58.7 million and $67.8 million, or $1.25 to $1.45 per diluted share.

The third quarter and fiscal 2017 outlook for GAAP net income or loss attributable to Blucora assumes an estimated tax rate of approximately 15%. Our actual tax rate may differ significantly from this estimated tax rate due to our projected near break even pre-tax income, and the adoption of Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Accounting ("ASU 2016-09"). In addition, our GAAP net income or loss attributable to Blucora outlook excludes any impact to tax expense for discrete items, which are affected by ASU 2016-09, and variable stock-based compensation related to grants to non-employee advisors, and including these items in our actual results when they occur may cause our actual results to differ significantly from the outlook provided.

Conference Call and Webcast

A conference call and live webcast will be held today at 8:30 a.m. Eastern Time during which the Company will further discuss second quarter results, its outlook for the third quarter and full year 2017 and other business matters. We will also provide the prepared remarks for the conference call along with supplemental financial information to our results on the Investor Relations section of the Blucora corporate website at http://www.blucora.com prior to the call. The supplemental financial information has also been filed with the SEC on Form 8-K. A replay of the call be available on our website.

About Blucora®

Blucora, Inc. (NASDAQ:BCOR) is a leading provider of technology-enabled financial solutions to consumers, small businesses and tax professionals. Our products and services in tax preparation and wealth management, through TaxAct and HD Vest, respectively, help consumers manage their financial lives. TaxAct is an affordable digital tax preparation solution for individuals, business owners and tax professionals. HD Vest Financial Services ® supports an independent network of tax professionals who provide comprehensive financial planning solutions. For more information on Blucora or its businesses, please visit www.blucora.com.

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results may differ significantly from management's expectations due to various risks and uncertainties including, but not limited to: risks associated with the Company's strategic transformation and the successful execution of its strategic initiatives, operating plans and marketing strategies; general economic, political, industry, and market conditions; the Company's ability to attract and retain productive advisors; the Company's ability to successfully make technology enhancements and introduce new products and services; information technology and cybersecurity risks; the effect of current, pending and future legislation, regulation and regulatory actions, such as the new Department of Labor rule and any changes in tax laws; dependence on third parties to distribute products and services; litigation risks; the Company's ability to hire, retain and motivate key employees; the Company's ability to protect its intellectual property; and financing risks, including risks related to the Company's existing debt obligations. A more detailed description of these and certain other factors that could affect actual results is included in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this release.

Blucora, Inc.

Preliminary Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share data)

Three months ended June 30,

Six months ended June 30,

2017

2016

2017

2016

Revenue:

Wealth management services revenue

$

85,296

$

76,117

$

167,963

$

153,408

Tax preparation services revenue

53,866

43,991

153,574

132,465

Total revenue

139,162

120,108

321,537

285,873

Operating expenses:

Cost of revenue:

Wealth management services cost of revenue

56,963

51,023

112,837

103,292

Tax preparation services cost of revenue

2,411

2,023

6,229

5,230

Amortization of acquired technology

47

49

95

716

Total cost of revenue (1)

59,421

53,095

119,161

109,238

Engineering and technology (1)

4,242

3,959

8,990

8,254

Sales and marketing (1)

22,296

19,913

71,294

63,750

General and administrative (1)

13,715

11,508

27,198

24,261

Depreciation

873

963

1,813

1,938

Amortization of other acquired intangible assets

8,289

8,316

16,577

16,632

Restructuring (1)

331

—

2,620

—

Total operating expenses

109,167

97,754

247,653

224,073

Operating income

29,995

22,354

73,884

61,800

Other loss, net (2)

(24,200

)

(10,916

)

(33,908

)

(18,430

)

Income from continuing operations before income taxes

5,795

11,438

39,976

43,370

Income tax expense

(2,315

)

(5,793

)

(5,786

)

(17,436

)

Income from continuing operations

3,480

5,645

34,190

25,934

Discontinued operations, net of income taxes

—

(19,975

)

—

(17,453

)

Net income (loss)

3,480

(14,330

)

34,190

8,481

Net income attributable to noncontrolling interests

(176

)

(115

)

(302

)

(259

)

Net income (loss) attributable to Blucora, Inc.

$

3,304

$

(14,445

)

$

33,888

$

8,222

Net income (loss) per share attributable to Blucora, Inc. - basic:

Continuing operations

$

0.08

$

0.13

$

0.79

$

0.62

Discontinued operations

—

(0.48

)

—

(0.42

)

Basic net income (loss) per share

$

0.08

$

(0.35

)

$

0.79

$

0.20

Net income (loss) per share attributable to Blucora, Inc. - diluted:

Continuing operations

$

0.07

$

0.13

$

0.73

$

0.61

Discontinued operations

—

(0.47

)

—

(0.41

)

Diluted net income (loss) per share

$

0.07

$

(0.34

)

$

0.73

$

0.20

Weighted average shares outstanding:

Basic

43,644

41,405

42,895

41,288

Diluted

46,937

42,298

46,182

41,954

(1) Stock-based compensation expense was allocated among the following captions (in thousands):

Three months ended June 30,

Six months ended June 30,

2017

2016

2017

2016

Cost of revenue

$

88

$

23

$

134

$

65

Engineering and technology

224

322

509

733

Sales and marketing

581

426

1,272

1,027

General and administrative

1,844

2,252

3,387

5,427

Restructuring

538

—

981

—

Total stock-based compensation expense

$

3,275

$

3,023

$

6,283

$

7,252

(2) Other loss, net consisted of the following (in thousands):

Three months ended June 30,

Six months ended June 30,

2017

2016

2017

2016

Interest income

$

(25

)

$

(11

)

$

(45

)

$

(36

)

Interest expense

5,529

8,381

11,965

17,572

Amortization of debt issuance costs

327

417

714

1,027

Accretion of debt discounts

755

1,094

1,840

2,500

(Gain) loss on debt extinguishment

17,801

997

19,581

(2,846

)

Other

(187

)

38

(147

)

213

Other loss, net

$

24,200

$

10,916

$

33,908

$

18,430

Blucora, Inc.

Preliminary Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands)

June 30, 2017

December 31, 2016

ASSETS

Current assets:

Cash and cash equivalents

$

78,312

$

51,713

Cash segregated under federal or other regulations

799

2,355

Available-for-sale investments

—

7,101

Accounts receivable, net of allowance

7,254

10,209

Commissions receivable

15,563

16,144

Other receivables

432

4,004

Prepaid expenses and other current assets, net

7,041

6,321

Total current assets

109,401

97,847

Long-term assets:

Property and equipment, net

8,677

10,836

Goodwill, net

548,890

548,741

Other intangible assets, net

345,521

362,178

Other long-term assets

2,677

3,057

Total long-term assets

905,765

924,812

Total assets

$

1,015,166

$

1,022,659

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

3,741

$

4,536

Commissions and advisory fees payable

16,143

16,587

Accrued expenses and other current liabilities

21,484

18,528

Deferred revenue

4,753

12,156

Current portion of long-term debt, net

2,560

2,560

Total current liabilities

48,681

54,367

Long-term liabilities:

Long-term debt, net

353,848

248,221

Convertible senior notes, net

—

164,176

Deferred tax liability, net

58,905

111,126

Deferred revenue

759

1,849

Other long-term liabilities

8,628

10,205

Total long-term liabilities

422,140

535,577

Total liabilities

470,821

589,944

Redeemable noncontrolling interests

15,998

15,696

Stockholders' equity:

Common stock

4

4

Additional paid-in capital

1,535,858

1,510,152

Accumulated deficit

(1,007,325

)

(1,092,756

)

Accumulated other comprehensive loss

(190

)

(381

)

Total stockholders' equity

528,347

417,019

Total liabilities and stockholders' equity

$

1,015,166

$

1,022,659

Blucora, Inc.

Preliminary Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

Six months ended June 30,

2017

2016

Operating Activities:

Net income

$

34,190

$

8,481

Less: Discontinued operations, net of income taxes

—

(17,453

)

Net income from continuing operations

34,190

25,934

Adjustments to reconcile net income from continuing operations to net cash from operating activities:

Notes to Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures

(1) We define Adjusted EBITDA as net income (loss) attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of stock-based compensation, depreciation, amortization of acquired intangible assets (including acquired technology), restructuring, other loss, net, the impact of noncontrolling interests, income tax expense, the effects of discontinued operations, and acquisition-related costs. Restructuring costs relate to the move of our corporate headquarters, which was announced in the fourth quarter of 2016. Acquisition-related costs include professional services fees and other direct transaction costs and changes in the fair value of contingent consideration liabilities related to acquired companies. The SimpleTax acquisition that was completed in 2015 included contingent consideration, for which the fair value of that liability was revalued in the second quarter of 2016.

We believe that Adjusted EBITDA provides meaningful supplemental information regarding our performance. We use this non-GAAP financial measure for internal management and compensation purposes, when publicly providing guidance on possible future results, and as a means to evaluate period-to-period comparisons. We believe that Adjusted EBITDA is a common measure used by investors and analysts to evaluate our performance, that it provides a more complete understanding of the results of operations and trends affecting our business when viewed together with GAAP results, and that management and investors benefit from referring to this non-GAAP financial measure. Items excluded from Adjusted EBITDA are significant and necessary components to the operations of our business and, therefore, Adjusted EBITDA should be considered as a supplement to, and not as a substitute for or superior to, GAAP net income (loss). Other companies may calculate Adjusted EBITDA differently and, therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

We define non-GAAP net income as net income (loss) attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of discontinued operations, stock-based compensation, amortization of acquired intangible assets (including acquired technology), accretion of debt discount and accelerated accretion of debt discount on the Convertible Senior Notes (the "Notes"), gain on the Notes repurchased, write-off of debt discount and debt issuance costs on the Notes that were redeemed and the terminated TaxAct - HD Vest 2015 credit facility, acquisition-related costs (described further under Adjusted EBITDA above), restructuring costs (described further under Adjusted EBITDA above), the impact of noncontrolling interests, the related cash tax impact of those adjustments, and non-cash income taxes. The write-off of debt discount and debt issuance costs on the terminated Notes and the closed TaxAct - HD Vest 2015 credit facility relates to the debt refinancing that occurred in the second quarter of 2017. We exclude the non-cash portion of income taxes because of our ability to offset a substantial portion of our cash tax liabilities by using deferred tax assets, which primarily consist of U.S. federal net operating losses. The majority of these net operating losses will expire, if unutilized, between 2020 and 2024.

We believe that non-GAAP net income and non-GAAP net income per share provide meaningful supplemental information to management, investors, and analysts regarding our performance and the valuation of our business by excluding items in the statement of operations that we do not consider part of our ongoing operations or have not been, or are not expected to be, settled in cash. Additionally, we believe that non-GAAP net income and non-GAAP net income per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business. Non-GAAP net income should be evaluated in light of our financial results prepared in accordance with GAAP and should be considered as a supplement to, and not as a substitute for or superior to, GAAP net income (loss). Other companies may calculate non-GAAP net income differently, and, therefore, our non-GAAP net income may not be comparable to similarly titled measures of other companies.

(2) As presented in the Preliminary Condensed Consolidated Statements of Operations (unaudited).